Journal of Business Ethics

, Volume 80, Issue 1, pp 37–44 | Cite as

Does Payment For Order Flow To Your Broker Help Or Hurt You?

  • Robert H. BattalioEmail author
  • Tim Loughran


The presumption is that a broker executing a stock trade for a retail investor will get the investor the best possible price execution for the transaction. In fact, the broker often sells the retail investor’s trade to an intermediary for cash payment. The broker’s motivation to generate dealer profits seems to overcome the broker’s fiduciary responsibility to obtain the best execution price for the customer, raising ethical questions. Purchasers and internalizers of order flow in the market may cause prices quoted on the NYSE to deteriorate, making all investors worse off.


Payment for order flow Madoff Broker execution Internalization 


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We would like to thank participants at the 2006 University of Notre Dame Ethical Dimensions in Business Conference, a referee, and Ann Tenbrunsel (editor) for helpful suggestions. Kim Lorenzen provided helpful research assistance.


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Copyright information

© Springer Science+Business Media B.V. 2007

Authors and Affiliations

  1. 1.Mendoza College of BusinessUniversity of Notre DameNotre DameU.S.A.

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